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Banks forced to import gold when available at a 2% discount locally

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Gold


More than a dozen banks nominated for importing gold are now being forced to buy the metal from abroad for lending it to jewellers, at a time when it can be bought at a huge discount in the domestic market.


Gold in Mumbai’s Zaveri Bazar market is currently trading at a discount of over two per cent to the international price. However, banks are not allowed to buy gold in India due to restrictions imposed by the Banking Regulations Act. They can only sell gold or import on behalf of users and traders under permission from the Reserve Bank of India.



Standard gold opened at Rs 37,478 per 10 grams in Zaveri Bazar this morning, about Rs 1,000 lower than the price of imported metal. The discount per ounce comes to over $40 and that is the price banks are paying for not being allowed to source gold from domestic refineries.


Jewellers and traders directly buy their requirements from the local market, whether imported or domestic. MMTC PAMPS is the only LBMA (London Bullion Market Association)-accredited refinery in India which sells gold that matches international standards. “However, banks cannot buy from them either,” said an industry official.


“It should be good practice to allow banks source gold locally when domestic prices are quoting over 2 per cent discount to landed cost. Market will also even out if banks can source locally,” said Shekhar Bhandari, Senior Executive Vice President and Business Head-Global Transaction Services and Precious Metals, Kotak Mahindra Bank.


The metal has been trading at a discount in domestic market two months, due to the absence of demand after it hit a six-year high. There was also an inflow of illegally imported gold after import duty on the metal was increased to 12.5 per cent. In the Mumbai wholesale market, the discount to import price is more than $40 or over two per cent.


Banks use gold for lending to jewellers at an interest rate of 3.5-4 per cent. The market for such lending, known as gold metal loans, is estimated at 120-130 tonnes a year, and at any given time half of the loan values are outstanding. Banks, however, can not buy this gold from MMTC PAMPS or any other refineries, which also have to sell gold at prevailing discount.


These refineries also sell gold on MCX, the most liquid derivative platform for bullion trading. This is because when the spot price is at a discount, if the MCX prices are quoting at premium, the refineries get higher realisations. In a contract settled on August 5 on MCX, over five tonnes of gold were delivered, which is not usual. Of these, four tonnes was delivered by MMTC PAMPS.


Banks, however, had to continue importing. Jewellers also have to borrow gold from banks only.


India Gold Policy Center under the IIM-A has said in its latest annual report that there is need to for amendments and clarifications in the Banking Regulation Act. IGPC has proposed a much larger role for banks in developing the bullion market and the amendments shall be such that allows, “banks to source locally, do inter-bank dealing, export bullion, transfer ounces to the counter party international bullion bank, allow opening of unallocated accounts, trading in dematerialised gold, hedge in domestic and international exchanges and finance refiners by sourcing dore”.

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Top 1,000 listed firms may see tax savings of Rs 37k cr on tax cut: Crisil

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Corporation tax: FY17 might see 1-1.5% cut


CRISIL Research on Sunday said top 1,000 listed companies could see tax savings of Rs 37,000 crore on account of the corporate tax cut.


“Over the past few days, a slew of measures have been introduced to address the slowdown in the Indian economy. Friday’s announcement, however, is the most material…Our analysis indicates these 1,000 companies could see tax savings of Rs 37,000 crore, or nearly a fourth of the total savings anticipated by the government,” it said in a statement.



The drop in tax rate would now bring India at par with most Asian economies, it added.


“CRISIL Research’s analysis of nearly 1,000 companies — spread across 80+ sectors such that they cover more than 70 per cent of NSE’s market capitalisation — indicates that effective tax rates had risen over the past 5 years,” it said.


These companies, including oil & gas and financial services, account for nearly a third of the tax paid by India Inc.


“These estimates are based on profit before tax for fiscal 2019. Given that we expect 5-6 per cent growth in India Inc revenues and Ebitda (earnings before interest, tax, depreciation and amortisation) for this fiscal, the savings could end up a tad higher,” it added.


In a major fiscal booster, the government on Friday slashed effective corporate tax to 25.17 per cent, inclusive of all cess and surcharges for domestic companies.

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Onion shoots up to Rs 70-80 per kg; Centre considers imposing stock limits

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The Centre is mulling imposing stock limits on onion traders as the retail prices of the key kitchen staple have shot up to Rs 70-80 per kg in the national capital and other parts of the country owing to supply disruption in the wake of excess monsoon rains in the major growing states, according to sources.


As per the data maintained by the consumer affairs ministry, retail onion prices rose to Rs 57/kg in Delhi, Rs 56/kg in Mumbai, Rs 48/kg in Kolkata and Rs 34/kg in Chennai last week. The prices were quoted at Rs 60/kg in Gurgoan and Jammu during the same period.



However, trade data showed retail onion prices skyrocketing to Rs 70-80 per kg towards the end of the last week from Rs 50-60/kg in the previous week.


Onion prices are on the rise despite several measures taken by the central government to boost supply.


“The government has taken several measures in the last few weeks to improve the domestic supply and check further increase in prices of onion. However, retail prices have suddenly shot up in the last 2-3 days because of supply disruption due to excess rains in the growing states,” a source told PTI.


It is a short-term supply disruption and if the situation does not normalise in the next 2-3 days and prices rise, then the government may consider seriously imposing stock holding limits on onion traders, the source said.


According to the Met Department, main onion producing regions especially Maharasthra, Karnataka, Andhra Pradesh, Gujarat, eastern Rajasthan and western Madhya Pradesh have received excess monsoon rainfalls in the last two days.


Right now, stored onions are sold in most parts of the country as fresh kharif (summer) crop will hit the market from November onwards, traders said.


Traders further said that there is enough supply of stored onion of the previous year’s crop in the country but its transportation has been affected because of heavy rains.


Much of the onion is stored in Maharashtra, where rains disrupted the transport of the kitchen staple to other parts of the country, said a wholesale trader from Lasalgoan in Maharasthra, Asia’s largest onion market.


At wholesale market of Lasalgoan, onion prices rose to Rs 45/kg last week, when compared with less than Rs 10/kg in the year-ago period.


The Centre has taken several measures to arrest the prices of onion in Delhi and other parts of the country. It is offloading onion from its buffer stock through agencies like Nafed and NCCF which are selling at around Rs 22/kg and state-run Mother Dairy at Rs 23.90 per kg in the national capital

The state governments have been asked to boost supply in their states lifting central buffer stock. Some states like Delhi, Tripura and Andhra Pradesh have shown interest so far.


The centre has a buffer stock of 56,000 tonnes of onion, of which 16,000 tonnes has been offloaded so far. In Delhi, 200 tonnes a day is being offloaded.


Besides, the Centre has discouraged export of onion by increasing the minimum export price and withdrawing incentives. It is also cracking down on blackmarketeers.


Besides rains, prices are under pressure on likely fall in kharif production of this year owing to less planted area under onion on account of excess rains, the sources added.

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FPIs withdraw Rs 4,193 crore from capital markets in September so far

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Foreign investors have pulled out a net sum of Rs 4,193 crore from the Indian capital markets in September so far, but the trend is expected to reverse on the back of fiscal relief measures announced by the government, experts said.


The Centre on Friday slashed corporate tax rates by around 10 percentage points and said the enhanced tax surcharge will not to apply on capital gains arising from sale of any security including derivatives in the hands of FPIs.



“The measures will act as a catalyst for supporting the slowing investment rate, boost corporate earnings, improve aggregate demand as corporates pass on some of the benefits to consumers and attract FPI flows into India,” said Vijay Chandok, MD and CEO, ICICI Securities.


According to latest depositories data, foreign portfolio investors (FPI) withdrew a net amount of Rs 5,577.99 crore from equities while infusing Rs 1,384.81 crore into the debt segment. This translates into a cumulative net outflow of Rs 4,193.18 crore between September 3-20.


Prior to this, FPIs had pulled out a net Rs 5,920.02 crore in August and Rs 2,985.88 crore in July from the domestic capital markets (both equity and debt).


“FPI outflows which have sustained after the budget are likely to reverse after the new big bang announcements by the Finance Minister. The fact that FPIs continued to sell even after the reversal of the surcharge imposed on FPIs, indicated that they were selling because of the slowdown and the poor prospects for corporate profitability.


“These concerns are no longer valid as the reforms can boost investment, growth and corporate profits. FPIs have to return,” said V K Vijayakumar, chief investment strategist at Geojit Financial Services.


Stating the reasons for FPI outflows, Ajit Mishra, VP Research at Religare Broking, said “apart from the signs of economic slowdown, valuation discomfort kept uneasiness in FPI intact. However, the announcements from Finance Minister have the potential to revive their sentiments.”

Going forward, “political stability will act as an added advantage for India among other high yield economies. Fiscal stimulus by way of tax rate cuts and removal of surcharge from capital gains on sale of shares should also help in attracting both foreign portfolio and direct investment,” said Vinod Karki, Head – Strategy at ICICI Securities.

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